Royal Commissions and Other Legislation Amendment Bill 2001

WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.

On 27 February 2001, ASIC announced that it was
conducting an investigation into HIH's market
disclosure.(1) Trading in HIH shares was suspended on
the same day and has not resumed. HIH went into provisional
liquidation on 15 March and was formally liquidated on 27 August.
Since announcing the initial investigation ASIC has broadened its
investigation to cover other potential breaches of the Corporations
Law such as whether the company had been trading while insolvent
and whether there has been any breach of directors' duties. ASIC
has said that the matters involved are complex and that its
investigation is likely to take many months.

On 16 May, ASIC Chairman David Knott announced
that:

we have initiated an investigation strategy that
clearly differentiates between prospective criminal and civil
avenues of enquiry. We are well advanced in assembling a specialist
team of investigators, drawing on both internal resources and
external experts. These include specialist actuarial, auditing,
claims management and insolvency skills. While the size and
composition of the investigating team will remain confidential, it
promises to be the biggest ever assembled by
ASIC.(2)

In the 2001-02 Federal Budget, ASIC was provided
with additional funding of $5 million over two years to assist with
its investigation of HIH.

On 24 May, ASIC commenced proceedings under the
Corporations Law against former CEO Mr Williams, chief financial
officer Mr Fodera and former director, Mr Adler. ASIC also sought
asset preservation orders under the Corporations Law.

It is important to note that these proceedings
are not directly related to the failure of HIH. They relate to the
investment of $10 million by HIH in a company called Pacific Eagle
Equities (Pacific Eagle) in June 2000. However, it is equally
important to note that these proceedings may reveal information
that would assist other inquiries and that these proceedings may
only be the first of many undertaken by ASIC in relation to
HIH.

On 18 June the Prime Minister announced the
establishment of the HIH Royal Commission to 'inquire into the
reasons for, and the circumstances surrounding, the failure of HIH
prior to the appointment of the provisional liquidators on 15 March
2001'.(3) The Terms of Reference expressly noted that
ASIC was 'also investigating certain matters surrounding the
failure of HIH' and required the Commissioner, Justice Neville
Owen, 'to the extent practicable' to 'cooperate with ASIC',
avoiding 'duplication of ASIC's investigation' and 'any adverse
impact on any civil or criminal proceeding arising out of ASIC's
investigation'.

The Terms of Reference reveal underlying
concerns regarding the overlap and possible conflicts in the powers
and functions of the Royal Commission and the investigation. Some
of these concerns were voiced in a newspaper article by Stephen
Donaghue:

If [ASIC] lays charges, the [royal] commission
will not be permitted to use its coercive powers to question any
witnesses against whom charges have been laid, because such
questioning (even in private) would constitute contempt of court.
The laying of charges would therefore seriously impede the
commission's ability to conduct its own investigation. If ASIC
delays the decision to lay charges, it will become harder to obtain
a conviction when charges are eventually laid. That is because
answers or documents a witness is required to give to a Royal
Commission cannot be used against that witness in subsequent court
proceedings. This protection is significantly wider than the
protection that operates during ASIC
investigations.(4)

Essentially, the argument is that a Royal
Commission, as an instrument of the executive, cannot interfere
with a civil or criminal proceeding being undertaken by the
judiciary. Conversely, there is a statutory requirement that
evidence given to a Royal Commission cannot be used against the
witness in any subsequent civil or criminal proceedings.

Arguably, there is a need for cooperation
between ASIC and the HIH Royal Commission.

The most obvious approach is to have one of the
bodies postpone its inquiry. The potential for overlap between the
two inquiries led at least one commentator to suggest that ASIC
would have little scope to investigate HIH while the HIH Royal
Commission is on foot: 'outside its present action on the creation
and trading of ... pacific eagle trust, its work is now on hold
until next September [2002] when the Royal Commission is due to
finish'.(5) (However, given the observations by
Donaghue, it would seem to make more sense if the HIH Royal
Commission postponed its inquiry until the ASIC investigation was
complete.)

Donaghue suggested an approach in which ASIC
identifies the identity and role of persons involved, the Royal
Commission then uses the information to make findings on individual
misconduct and concentrates on other terms of reference.

The virtue of this approach is not only that it
forestalls the outcomes above, but that it arms the HIH Royal
Commission with the far broader powers of ASIC to compel witnesses
irrespective of privileges or subsequent civil or criminal
liability. However, the difficulty with the 'tri-continental'
approach is that it may involve significant delays in the ASIC
investigation and/or the HIH Royal Commission. Moreover, it does
not prevent the possibility that information may inadvertently be
given in evidence to the HIH Royal Commission which cannot then be
used by ASIC in subsequent proceedings.

Either way, postponement does not seem very
likely. First, the draft Terms of Reference for the HIH Royal
Commission and ASIC's own media statements(6) state
clearly that the inquiries will need to cooperate, suggesting that
they will have overlapping timeframes. Second, as indicated, ASIC
has been given extra funding in the current financial year.

What is needed is a relationship between ASIC
and the HIH Royal Commission which enables information to pass
readily between the bodies, facilitating both inquiries.

The Bill essentially deals with the transfer of
information. It does not address the issues associated with the
potential conflicts that may arise as a result of information being
led in evidence to the HIH Royal Commission rather than the ASIC
investigation.

The following discussion traces the similarities
and differences in the regimes which apply to the ASIC
investigation and the HIH Royal Commission relating to the powers
to compel witnesses and the use of evidence in subsequent civil or
criminal proceedings.

Courts have the power to compel witnesses to
answer questions and produce documents. However, this power is
limited by the operation of certain privileges and immunities. The
key privileges are legal professional privilege and the privilege
against self-incrimination.

Legal Professional Privilege

Legal professional privilege protects a range of
confidential communications made between lawyers and
clients.(7) Traditionally, it protects communications in
the context of actual or anticipated legal proceedings. It also
protects other communications between lawyers and clients, provided
they pass 'as professional communications in a professional
capacity'.(8) Moreover it may protect communications
between lawyers and third parties, 'but only when they are prepared
for, or in contemplation of, existing or anticipated litigation, or
for the purpose of ... obtaining evidence with reference to such
litigation'.(9)

The key issue is whether a communication is made
for the purpose of the client being provided with legal advice for
legal proceedings. The 'sole purpose' test has been replaced with a
'dominant purpose' test in legislation.(10) A document
which has been prepared with a view to its being used to assist
impending litigation may be privileged, even if it is never
used.(11) A document may remain privileged even if it is
disclosed to an opponent.(12)

Traditionally, the reason for the privilege was
understood to be the 'maintenance of confidence pursuant to a
contractual duty which arises out of a professional
relationship'.(13) The modern reason is its 'tendency to
broaden the operation of the rule of law as well as to enhance the
individual's capacity to secure its protection'.(14) It
is essentially the need to ensure that there is a freedom and
candour of communication between lawyer and client:

[I]ts justification is to be found in the fact
that the proper functioning of our legal system depends upon a
freedom of communication between legal advisers and their clients
which would not exist if either could be compelled to disclose what
passed between them for the purpose of giving or receiving
advice.(15)

Privilege Against Self-Incrimination

The privilege against self-incrimination is
fundamental. It protects an accused who is required 'to produce
documents which tend to implicate that person in the commission of
the offence charged'.(16) It extends to protect a person
from revealing anything which may lead to the discovery of adverse
evidence not in the person's possession or
power.(17)

Various reason have been put forward for the
privilege. It has been said that it is a human right 'based on the
desire to protect personal freedom and human
dignity'.(18) In more pragmatic terms it has been said
that it is a significant element in the accusatorial system of
justice. It follows from the propositions that 'the prosecution
must prove the guilt of the prisoner'(19) and that 'an
accused is not bound to incriminate himself'.(20) A
middle ground seems to be the proposition that the privilege
provides for a 'fair state-individual balance' in the conduct of
criminal proceedings. To some extent the reason for the privilege
may also be based on the public interest in the administration of
justice:

it is important for the proper administration of
justice, not only that would-be witnesses are ... protected from
the risk of any incrimination or penalty as they give their
evidence. It is thought that without such protections witnesses
might be loath to come forward to give evidence and, although
reliance on the privilege will sometimes obstruct the course of
justice in the case in which it is claimed, and may militate
against the discovery of crimes which ought, in the public
interest, to be traced, this is probably sufficient justification
for protecting a witness from exposing himself to the peril of
criminal proceedings.(21)

To a degree, Royal Commissions and commissions
of inquiry have the power to compel witnesses to answer questions
and produce documents. While Royal Commissions may be established
by the executive, the executive cannot confer these powers
unilaterally. They must be conferred by statute and are therefore
subject to restraints on legislative power.

The Royal Commissions Act 1902 (the RCs
Act) gives Royal Commissions the power to compel witnesses, backed
by a power to punish witnesses for contempt. Similarly, the
Australian Securities and Investments Commission Act 2001
(the ASIC Act) gives ASIC the ability to compel witnesses, backed
by criminal penalties for failure to comply. Witnesses must answer
questions and produce documents unless they have a reasonable
excuse. In very limited circumstances, witnesses may object on the
ground of relevance.

Privileges

Generally, both privileges apply to Royal
Commissions and executive inquiries. Thus, it has been said that
the privilege against self-incrimination is 'too fundamental a
bulwark of liberty to be categorised simply as a rule of evidence
applicable to judicial or quasi-judicial
proceedings'(22) and must therefore be applicable to
non-judicial proceedings.(23) It was originally
considered that legal professional privilege was confined to
judicial or quasi-judicial proceedings.(24) However, it
is clear that the privilege is more than a rule of evidence or
procedure and is part of the substantive common law.(25)
On this basis, it has the power to affect disclosure outside the
judicial or quasi-judicial sphere. However, while it may extend to
extra-judicial proceedings, its content varies according to the
nature of the document for which protection is sought and the
context in which production is sought.(26)

However, it is equally clear that both
privileges may be confined or abrogated by statute.(27)
While neither privilege can be abrogated except by a clear
statutory intention evidenced by express words or necessary
implication,(28) some Acts have clearly and effectively
done so.

The RCs Act and the ASIC Act both abrogate the
privilege against self-incrimination. While a person may refuse to
comply with a direction if he or she has a reasonable excuse:

RCs Act: it is unreasonable not to answer a question
or produce a document where that 'might tend to incriminate a
person' unless the matter in question relates to an offence for
which the person has been charged but which has not been
finalised.(29)

ASIC Act: it is unreasonable not to answer a question
or produce a document where that 'might tend to incriminate the
person or make the person liable to a penalty' even
if charges are pending.(30) In this context
'penalty' includes any penalty arising out of criminal or civil
proceedings, provided the burden imposed is truly intended to
punish the person rather than to prevent some threat to the public
interest.(31)

While there was once some doubt regarding the
application of legal professional privilege to ASIC
investigations,(32) the ASIC Act now preserves the
privilege in statutory form. The RCs Act is silent on this issue.
The privilege is expressly abrogated in
Victoria.(33)

One might expect that where a privilege is
abrogated, any evidence that a witness is compelled to give would
be protected in subsequent proceedings. This would respect both the
public interest in disclosure at Royal Commissions and the public
interest in the administration of justice and protection of human
rights in the courts.

General

Historically, evidence given to a Royal
Commission was presumed to be admissible in subsequent legal
proceedings.(34) However, it may be more accurate to say
that the issue turns upon construction of the relevant
statute.(35) The difficulty is that 'Australian statutes
... rarely express guidance in relation to the admissibility of
compelled evidence'.(36) Moreover, while some statutes
expressly deal with inadmissibility it is often
incorrectly assumed that the statutory abrogation of a privilege
necessarily implies that the evidence obtained by the Royal
Commission is not admissible in subsequent
proceedings.(37)

The RCs Act and the ASIC Act deal with compelled
evidence in disparate ways:

RCs Act: evidence is not admissible
against that witness 'in any civil or criminal
proceedings in any court of the Commonwealth, of a State or of a
Territory'.(38) (In this context 'civil or criminal
proceedings' includes administrative
proceedings.(39))

ASIC Act: evidence is admissible, subject to
some exceptions, in 'a proceeding' against the
witness.(40) It is admissible notwithstanding that the
witness is absent.(41)

Use in Any Proceedings

The prohibition against use of compelled
evidence 'in any civil or criminal proceedings' is a
significant limitation not only on the courts but on the Royal
Commissions themselves. It poses a significant obstacle to any
government which seeks to prosecute conduct that is discovered as a
result of the activities of a Royal Commission. It effectively
prevents a Royal Commission from investigating matters which may
form the basis of subsequent civil or criminal proceedings. For
this reason, it is at the heart of the concerns expressed by
Donaghue above regarding cooperation between ASIC and the HIH Royal
Commission.

Donaghue suggests that the solution is to
conduct joint Royal Commissions in which Commonwealth and State
Governments issue letters patent to the same commissioner. Thus,
the commissioner is able to use the coercive powers of the State
legislation, rather than the Commonwealth legislation, and
therefore avoid any 'potential inconvenience'.(42)

However, this approach would not seem to be able
to get around the blanket immunity. The problem was clearly
illustrated by the circumstances surrounding the Royal
Commission on the Activities of the Federated Ship Painters and
Dockers Union (1981-1984) conducted by Frank Costigan QC.
Following the Royal Commission, the Victorian Government sought
successfully to prosecute two of the witnesses for perjury.
However, the conviction was set aside following an appeal to the
High Court which upheld the blanket prohibition in the Commonwealth
Royal Commissions Act 1902.(43) The
Commonwealth law effectively overrode the contrary State law, even
though simultaneous letters patent were issued and the Victorian
legislation permitted perjury prosecutions.

Clearly, there is a need for cooperation between
ASIC and the HIH Royal Commission. The measures in this Bill will
assist in this regard. However, it is unclear how both inquiries
will operate effectively and avoid any 'potential
inconvenience' described above. As a practical matter, the paths of
the ASIC investigation and the HIH Royal Commission are likely to
cross at some point in the future. It may not be sufficient simply
to permit the bodies to exchange information or to direct Justice
Owen to conduct the commission with a view to avoiding adverse
impacts on subsequent civil or criminal proceedings. Nor would it
seem to be sufficient for governments to issue simultaneous letters
patent. The Commonwealth may need to reconsider the blanket
immunity in the Commonwealth Act.

Section 127 of the ASIC Act deals with
confidentiality of information obtained by ASIC. ASIC must take
'all reasonable measures' to protect from unauthorised use or
disclosure:

confidential information: information which has been given to
ASIC in confidence in relation to the performance of functions and
exercise of its powers, and

'protected information': information which has been given to or
obtained by ASIC in accordance with section 12A(44)
relating to a person or body regulated by ASIC

Subsection 127(2) permits disclosure of
information 'as required or permitted by a law of the Commonwealth
or a prescribed law of a State or ... Territory'. Such disclosure
is taken to be 'authorised use and disclosure' for the purposes of
the ASIC Act.

Subsection 127(2A) grants the same permission in
respect of disclosure to the Minister, the Departmental Secretary
and to APRA.

Proposed subsection127(2B) permits disclosure to a Royal Commission
under the Royal Commissions Act 1902. The ASIC Chairperson
may impose conditions on the disclosure of information
(proposed subsection 127(2C)).

Part IV of the FTR Act deals with
confidentiality of information obtained under the FTR Act. No
Director, staff member, customs officer, police officer or
consultant may 'make a record of any [such] information', or
'divulge or communicate to any person any [such] information'
except in accordance with the FTR Act (section 25).

Section 27 provides for disclosure of 'FTR
information' or information relating to reports of 'significant
cash transactions' (cash transactions greater than A$10 000). The
Australian Tax Office effectively has access to FTR information
as of right (paragraph 271(1)(a)). The Director of AUSTRAC
may confer the same right on other agencies including the
Australian Customs Service, a 'revenue authority of a State or
Territory', and a 'law enforcement agency' for the performance of
its functions (paragraphs 271(1)(b)-(ca)).

Generally, 'law enforcement agency' means the
National Crime Authority, the Australian Federal Police and the
'Australian Securities Commission' (ASIC) (subsection 27(14)).
However, the phrase also includes, or has been extended to
include:

the Police Force of a State

the New South Wales Crime Commission

the Independent Commission Against Corruption of New South
Wales(45)

the Criminal Justice Commission of
Queensland(46)

the Royal Commission into the New South Wales Police
Service(47)

the Police Integrity Commission,(48) and

the Australian Bureau of Criminal Intelligence (paragraphs
27(16)(a)-(g)).(49)

The agencies' access rights are extended to
their key officers (subsection 27(17)).

Proposed paragraph 27(16)(ea)
includes within 'law enforcement agency' a Royal Commission 'whose
terms of reference include inquiry into whether unlawful conduct
(however described) has occurred' (emphasis added).
Proposed subsection27(17)
extends access rights to the Royal Commission(ers), staff members
and counsel assisting.

Section 6P of the Royal Commissions Act permits
Commissions to disclose information to various bodies if, 'in the
opinion of the Commission it is appropriate to do so'.

It may disclose information that relates or may
relate to an offence to various persons including a Commonwealth,
State or Territory Attorney-General, Police Commissioner or
'authority or person responsible for the administration or
enforcement of the [relevant] law' (subsection 6P(1)). It may
disclose information that it considers relates to an inquiry by
another Commission or by the National Crime Authority (subsections
6P(2) and (2A)).

Item 5 seeks to amend
subsection 6P(1) to extend the breadth of the discretion from
'information that relates, or that may relate, to the commission of
an offence, or evidence of the commission of an offence, against a
law of the Commonwealth, of a State or of a Territory' to
'information that relates, or that may relate, to a
contravention of a law, or evidence of a contravention of a
law, of the Commonwealth, of a State or of a Territory'.

Thus, the amendment captures conduct which is
unlawful rather than conduct which constitutes an offence under
Commonwealth, State or Territory law.

Proposed subsection6P(1A)
makes it clear that 'a contravention of a law', or unlawful conduct
means a contravention which may involve a criminal penalty, civil
penalty or administrative penalty.

The possibility of conflict between the
inquiries, and therefore the implication that the HIH Royal
Commission could raise more issues than it resolves, is significant
particularly considering the estimated costs associated with the
conduct of the Commission. At least one commentator has suggested
that it will cost $40,000 per day or $20m in
total.(50)

It is extremely difficult for an outsider to
estimate the costs of a Royal Commission. Key issues with respect
to cost are the structure and composition of the commission and its
duration. Cost will be affected by the proportion of time allocated
to research, hearings, drafting, publication, etc. It will also be
affected by the location and venue, extent of travel, number of
witnesses called, etc. In addition, it may be affected by witness
expenses(51) and the extent to which the Royal
Commission agrees to pay legal costs of witnesses on the basis that
they may (ultimately) expose themselves to legal liability. A
comparative table showing the costs of various federal Royal
Commissions is included in Appendix B.

The Corporations Law requires listed companies to disclose to
the market information that a reasonable person would expect to
have a material effect on the price or value of its securities
(section 1001A).

David Knott, 'HIH Insurance investigation', Media
Release, 16/05/01.

Prime Minister, 'HIH Royal Commission', Media Release,
18/06/01.

Stephen Donaghue, 'HIH: why only ASIC can catch the guilty',
The Age, 20/06/01.

John Durie, 'ASIC may as well sit on its hands', Australian
Financial Review, June 19 2001

119. Evidence is not to be
adduced if, on objection by a client, the court finds that
adducing the evidence would result in disclosure of:

(a) a confidential communication made between
the client and another person, or between a lawyer acting for the
client and another person, that was made; or

(b) the contents of a confidential document that
was prepared;

for the dominant purpose of the client
being provided with professional legal services relating to an
Australian or overseas proceeding (including the proceedings before
the court) in which the client is or may be ... a party.

Australian Securities Commission v Kippe (1996) 137
ALR 423, per Von Doussa, Cooper and Tamberlin JJ at pp. 430-431. In
that case, the Federal Court rejected an argument that a power to
issue a 'banning order' under the Australian Securities
Commission Act 1989 was a provision for the imposition of a
penalty: 'The immediate and direct legal effect intended by a
banning order is not to impose a penalty or punishment on the
person concerned, but to be preventative in that it removes a
perceived threat to the public interest and to public confidence in
the securities and futures industry by removing a that person from
participation therein', at p. 431.

In Commission Against Corruption (NSW) v Yuill, op.
cit. the High Court effectively held that the Companies Code, the
predecessor of the Corporations Law had impliedly abrogated the
privilege by providing express provision for its protection in
subsequent proceedings (per Brennan, Dawson and Toohey JJ) and,
perhaps, by abrogating the privilege against self-incrimination
(per Dawson J). Both of these measures suggested an understanding
that the privilege did not apply and/or an intention that it was to
be abrogated. Thus, Donaghue concludes that the privilege is
abrogated by the ASIC Act: Donaghue, op. cit., p 109.

Royal Commissions in Victoria are given the power to compel
witnesses irrespective of legal professional privilege:
Evidence Act 1958 (Vic) section 19D. The provision was
upheld in Esso Australia Resources Ltd v Dawson (1999) 162
ALR 79 at p. 86

R v Scott (1856) 169 ER 909; R v Coote (1873)
LR 4 PC 599.

Commissioners of Customs and Excise v Harz [1967] 1 AC
760.

Donaghue, op. cit., p. 202.

Ibid, p. 203.

Royal Commissions Act 1902, section 6DD. This is not
to say that the statements or documents may not be used for limited
purposes. For example, a statement might be admissible as
a prior inconsistent statement provided it is used solely for the
purpose of attacking the credibility of the witness rather than
proving an incriminating fact: See Donaghue, op. cit., pp. 212-213
discussing the Canadian case of R v Kuldip (1990) 61 CCC
(3d) 385.

Section 12A confers 'other functions and powers' on ASIC which
include powers conferred under insurance and superannuation
legislation, 'monitoring and promoting market integrity and
consumer protection' in the 'payments system' (the system that
governs cheque clearing, electronic funds transfers, etc. among
financial institutions).

Crimes Legislation Amendment Act (No. 2) 1991, section
15.

Ibid.

Royal Commission into the New South Wales Police Service
(Access to Information) Act 1994, Schedule, item 2.

The Commissioner will into the reasons for, and the
circumstances surrounding, the failure of HIH prior to the
appointment of the provisional liquidators on 15 March 2001.

In particular, he will inquire into:

whether, and if so the extent to which, decisions or actions of
HIH or any of its directors, officers, employees, auditors,
actuaries, advisers or agents:

contributed to the failure of HIH; or

involved undesirable corporate governance practices, including
any failure to make desirable disclosures regarding the financial
position of HIH;

whether those decisions or actions might have constituted a
breach of any law of the Commonwealth, a State or a Territory and,
if so, whether the question of criminal or other legal proceedings
should be referred to the relevant Commonwealth, State or Territory
agency;

the appropriateness of the manner in which powers were
exercised and responsibilities and obligations were discharged
under Commonwealth legislation;

the appropriateness of the manner in which powers were
exercised and responsibilities and obligations were discharged
under State or Territory legislation; and

the adequacy and appropriateness of arrangements for the
regulation and prudential supervision of general insurance at
Commonwealth, State and Territory levels, taking into account his
findings in relation to the matters referred to in the preceding
paragraphs and other relevant matters, including:

Commonwealth arrangements before and after the Financial System
Inquiry reforms; and

different State and Territory statutory insurance and tax
regimes.

...

Noting that the Australian Securities and Investments Commission
(ASIC) is also investigating certain matters surrounding the
failure of HIH, the Commissioner will, to the extent practicable,
co-operate with ASIC and conduct his inquiry with a view to
avoiding:

any duplication of ASIC's investigation; and

any adverse impact on any civil or criminal proceeding arising
out of ASIC's investigation.

Nathan Hancock
30 August 2001
Bills Digest Service
Information and Research Services

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